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Written by rosalind renshaw

A consortium of estate agents is forming in the wake of last week’s twin Stamp Duty bombshells.

The forum is to take professional advice and make representations to HMRC after it emerged that some of the work agents, solicitors and financial advisers did in rushing deals through to exchange on Budget Day may have been in vain.

Knight Frank alone cleared 23 £2m-plus deals, worth a collective £107.5m, while some agents were working frantically with interpreters and clinching deals with only 45 minutes to go before the midnight deadline.

But the small print of the Budget says that the 15% rate of tax for purchases by companies applied from Budget Day itself, March 21, onwards. The 7% rate for purchases by individuals, applied from March 22. About 40% of prime property purchases in London are by company vehicles.

The real complication is that it was widely thought that the use of company vehicles to purchase properties applied only to off-shore companies, and not to UK companies, partnerships, collective investment schemes and unit trusts.

Accountants are now advising that, in the absence of further clarification from the Treasury, the 15% rate applies to all the above, as ‘non-natural’ purchasers. The Treasury is under pressure to define exactly what it means by ‘non-natural’ purchasers and may do so this week.

The worry for agents and solicitors is that they could now face a legal backlash from some clients who might allege they were not correctly advised, and who might also have pushed through deals ignorant of further ‘property bashing’ in store.

Ed Mead, director of Douglas & Gordon, who is instrumental in forming the consortium, believes that a very large number of Budget Day deals did not work, “unless you were psychic and both exchanged and completed the day before”.

He added: “I would suggest that there will be some legal issues for people who rushed through deals and who have still been clobbered.”

Nor is the clobbering over.

The Government is to consult on the introduction of an annual charge on residential properties valued at over £2m and owned by ‘non-natural persons’, with the intention of legislation next spring.

Further, the Capital Gains tax regime will be extended to include the disposal of UK residential property owned by non-resident, non-natural persons, also from April 2013.

Liam Bailey, head of Knight Frank residential research, said that in effect the Government is saying that if you buy an expensive residential property as an individual rather than a company, you will pay 7% rather than 15%, but also avoid future annual charges.

He said that the prime market, especially in London, should be able to absorb the new 7% Stamp Duty rate, but the bigger question was the tripling of Stamp Duty from 5% to 15% for non-natural purchasers.

He said: “Whereas tax may, in some cases, be the reason for the adoption of these structures, for many wealthy buyers it is privacy which is the main benefit from this ownership route.

“It seems likely that the 15% rate and the threat of an annual charge on the value of properties held may dissuade some buyers from opting for this purchase route, and for some purchasers this will undermine the attractiveness of the UK as a home for their investment capital. However, it is far too early to try to quantify the potential impact in terms of numbers of purchasers.”

Bailey also said there would be price pressure on properties for sale above the £2m mark.

He added: “There has to be an element of price adjustment, and we would expect tough negotiations around the £2m level. It is important to bear in mind that on average, prime London prices have risen by 42%  in price since 2009, with no pause in the increase in values since the introduction of the 5% £1m+ SDLT rate in April 2011.

“It seems unlikely therefore that the new 7% rate will result in dramatic price changes.

“Aside from pricing, the evidence from previous stamp duty hikes is that rising stamp duty rates tend to mean owners stay in their properties for longer. There is a greater incentive to improve and extend properties rather than moving properties. The impact of this process is to reduce supply and reduce transaction volumes over time.”

Outside London, James Wyatt, of Barton Wyatt, which specialises in the Wentworth Estate, said: “We expect a considerable amount of negotiating this week over existing deals. One that stands out like a sore thumb is a sale agreed at £2.05m.”

In central London, single office WA Ellis exchanged on £13m of prime property in the afternoon and evening of Budget Day, as individual purchasers fought to avoid paying an extra 2% Stamp Duty.

Partner Lucy Morton said that one sale involving an off-shore company had stalled. She added: “We have also received an offer of £1,999,999 on a property we are marketing in excess of £2m, which may be the start of a new trend at this level of the market.”

She said that the ‘punitive’ 15% tax plus the prospect of an annual charge was a serious threat to the “anonymity enjoyed by foreign nationals owning property in London”.

At John D Wood, managing director Peter Young said that his firm had had a number of quick exchanges on Budget Day. He said that in the light of the 15% levy, a number of property-holding structures would have be unwound.

He added: “It is highly probable that many of our clients will need sound advice and some will need action.”

James Greenwood, of Stacks Property Search, said: “As buying agents, we will be asking vendors to settle the difference in Stamp Duty on behalf of our buyers by taking a reduction in price.

“Properties between £2m and £2.5m are going to be almost impossible to market.”

Any agent wanting to contact Ed Mead over the action group can email him at emead@dng.co.uk
 

Comments

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    What is the reason the company rather than the person is buying the property?
    Let me think! Oh thats right 40% of anything over £325,000 is given back to HMRC (Tax on Acquired Taxed Assets) in Death duty. Becoming the Director of a company with property as part of its portfolio doesn't attract that rate of tax liability passing on the wealth from the Croaked to the kids.

    A 7% hike in entry tax is bugger all compared with the saving long term so the only ones who will realy whinge are the private buyers.

    • 26 March 2012 15:59 PM
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    The Action Group is reportedly off to a good start. Over 30 people have 'Liked' it and it has already resulted in a couple of Friend requests...

    ; )

    • 26 March 2012 13:38 PM
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    “Properties between £2m and £2.5m are going to be almost impossible to market.”

    Aah what a shame, what about the market for properties in the range of £250-£275k, this price range is a lot bigger market than the £2m-£2.5m sector, and vendors have been suffering the hit for years or buyers having to pay an increase.

    Dont feel a least bit sorry for any of these dappy london agents either, one of them came out and said last week the majority of properties bought by companies are deent and not trying to avoid stamp duty at all. yeah right.

    • 26 March 2012 13:07 PM
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    The Chancellor's exact words from the Budget (my emphasis in CAPS):

    "A major source of abuse, and one that rouses the anger of many of our citizens, is the way in which some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property. I have given plenty of public warnings that this abuse should stop, and now we are taking action. I am increasing the stamp duty land tax charge applied to residential properties over £2 million that are bought into a corporate envelope. The charge will be 15%, AND IT WILL TAKE EFFECT TODAY.

    "We will also consult on the introduction of a large annual charge on those £2 million residential properties that are already contained in corporate envelopes, and, to ensure that wealthy non-residents are also caught by these changes, we will be introducing capital gains tax on residential property held in overseas envelopes. We are also announcing legislation today to close down the subsales relief rules as a route of avoidance.

    "Let me make this absolutely clear to people. If you buy a property in Britain that is used for residential purposes, we will expect stamp duty to be paid. This is the clear intention of Parliament, and I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned. It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more. FROM MIDNIGHT TONIGHT, we will introduce a new stamp duty land tax rate of 7% on properties worth more than £2 million."

    • 26 March 2012 10:14 AM
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    Vendors or property truly worth well over £2m will need to discount their price only by the amount of the SDLT amount that their purchasers will have to pay - ie they are effectively paying the SDLT for the purchaser - If vendors are saying that they will have to reduce their prices all the way down to the £2m cut off for the higher rate then they were not worth the ridiculously high price in the first place!
    I have been suggesting for a long time that SDLT would be far better applied as a SALES tax anyway when the vendors have some equity in the property from which to pay it and thus also reduce the burden of this tax for FTBs.
    There will be purists who'll argue that the effect of this would be property inflationary but don't underestimate the witt of the purchasing public - the SDLT is already a factor in most chain transactions where the vendor has to account for the tax on his upward purchase anyway.

    I am quite glad to see that the window for avoidance of the new tax was effectively non existent - unlike previous changes when the market has been put on notice and therefore caused unnatural blips in sales activity.....

    as for anonymity as a reason why people use the company vehicle - well why should they remain so when all the rest of us can find out quite legitimately who lives next door by contacting the Land Registry - come on boys stop moaning and get on with it!

    • 26 March 2012 08:54 AM
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